Trump is losing the trade war with China and the EU, based on his favorite report card

President Donald Trump made shrinking the trade deficit a key goal for his trade battles.

The US trade deficit increased to its highest level since February in July.

The goods trade deficit with China and the European Union, two of Trump’s main targets, hit record highs.

Soybean exports, one of China’s main trade war targets, fell in July.

President Donald Trump’s trade war doesn’t seem to have curtailed American appetite for foreign goods – at least not yet.

Despite the imposition of tariffs and counter-tariffs in July, the US trade deficit increased to $50.1 billion, a 9.6% increase from the previous month, according to the US Census Bureau. The increase came on the back of a 0.9% increase in imports to a record $261.2 billion, as US domestic demand remains strong. Exports, on the other hand, slipped 1%.

For the year, the trade deficit increased to $338 billion, compared to $316 billion in the first seven months of 2017.

Similarly, the deficit with the EU hit $17.59 billion, as imports ticked up 2.5% and exports collapsed 15.7%.

Ward McCarthy, chief financial economist at Jefferies, said the worsening trade deficit with two of Trump’s main trade war targets could lead to more attacks from the president.

“These record deficits are likely both be a partial consequence of the ongoing trade/tariff war and a likely catalyst for increase trade tensions between the US, EU and China,” McCarthy said in a note to clients.

McCarthy also pointed out that the trade deficit with Canada increased to $3.15 billion, a 58% increase from the month before and the highest since January.

Of particular note, exports of soybeans fell by $700 million in the month of July, a 16.2% drop. Soybeans are the largest US agricultural export, and China is by far the largest destination for the crop. China imposed tariffs on US soybeans in July, and the pre-tariff surge in soybean exports appears to be reversing. But soybean exports through the first seven months came above the same time period a year ago.

The data show that while the tariffs may be having some marginal effect on exports, the surge in imports is mostly due to the internal strength of the US economy. The US consumer is in a healthy financial spot, especially compared to many other countries, and the strong US dollar makes exports cheaper.

Add all of this up and you have a recipe for a growing deficits.

Ian Shepherdson, the chief economists at Pantheon Macroeconomics, said that given the variety of factors at work, the second quarter’s decline in the trade deficit will most likely be erased in the current quarter.

“The trade deficit likely will be flat-to-higher over the next couple of months, reversing most or all of the second quarter’s drop, which the President has cited as evidence of the success of his trade policies,” he said. “It wasn’t.”